Selling a Business in Brazil: Risks for Buyer and Seller
When a company buys another's premises, inventory, equipment and customer base, negotiations usually focus on price. Brazilian law, however, treats this as a transaction of its own, the sale of a business establishment (known in Portuguese as trespasse), with rules that affect both parties long after signing.
What a business establishment is
Under article 1,142 of the Brazilian Civil Code, a business establishment is the set of assets organized to carry on a business: premises, machinery, inventory, trademark, contracts and customers. Article 1,143 allows this set to be sold as a whole, without selling the company that operates it.
Registration and publication
The contract only has effect against third parties after it is recorded with the Commercial Registry (Junta Comercial) and published in the official gazette (art. 1,144). Without this step, creditors and suppliers may act as if the sale never happened.
There is also a condition that is often overlooked. If the seller is left without enough assets to pay its own liabilities, the sale is only effective once all creditors are paid or consent, expressly or tacitly, within 30 days of being notified (art. 1,145).
The seller's debts
Under article 1,146, the buyer is liable for debts prior to the transfer that are properly recorded in the books. The seller remains jointly liable for one year, counted from publication for debts already due and from the due date for the others.
Labor and tax
Labor liability is broader. Articles 10 and 448 of the Brazilian Labor Code (CLT) preserve employment contracts when the business changes hands, and article 448-A makes the successor liable for labor obligations, including those from the period when employees worked for the seller. The seller is jointly liable when fraud in the transfer is proven.
On the tax side, article 133 of the National Tax Code (CTN) reaches whoever acquires the establishment and continues the activity. The buyer is liable for taxes owed up to the date of the sale: in full, if the seller ceases operating; on a secondary basis, if the seller continues operating or starts a new activity within six months. Under paragraph 1, the rule generally does not apply to acquisitions through a court sale in bankruptcy, or of a branch or isolated production unit in judicial reorganization.
Contracts and receivables
Unless otherwise agreed, the buyer takes over the contracts used to operate the establishment that are not personal in nature, such as supply and service agreements. Third parties may terminate them within 90 days of publication if there is just cause (art. 1,148). The assignment of the establishment's receivables is effective against debtors from publication (art. 1,149).
Non-compete
For the seller, the rule that most often comes as a surprise: unless expressly authorized, the seller may not compete with the buyer for five years after the transfer (art. 1,147). The contract may address this differently, but it must do so clearly, setting duration and scope.
What the contract should cover
Price is only one part of the negotiation. These items usually matter just as much:
prior due diligence on civil, labor and tax debts;
seller's representations on liabilities and a clause for undisclosed liabilities;
holdback of part of the price or a guarantee for a set period;
a list of the contracts being transferred;
a non-compete rule with defined duration and scope;
a deadline for registration and publication.
A well-documented sale of a business establishment protects the buyer against surprises and protects the seller against claims that should no longer be theirs.
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